On key software decision, top patent court grinds to a stalemate

Ten judges, seven opinions, 135 pages, zero legal precedent.

Over the course of the past year a case about four financial software patents has taken on great significance. In 2007, Alice Corp accused CLS Bank of infringing its patents on a type of computerized trading platform that used "shadow accounts." In the years since then, the Supreme Court has significantly tightened up the rules about what is patentable. In 2011, Alice's patents were thrown out by a federal judge, who ruled they didn't cover patentable subject matter.

Last year, Alice won a surprising reversal. An appeals panel ruled 2-1 that Alice's patents should be allowed after all, suggesting only the most abstract of claims should be barred from winning patents under Section 101. The third judge, US Circuit Judge Sharon Prost, wrote a blistering dissent, suggesting that the ruling violated Supreme Court guidance, by allowing a patent on a financial technology that was "literally ancient."

With the waters thus muddied, the Federal Circuit, which hears all patent appeals, made the choice to reconsiderCLS Bank v. Alice Corp. as an "en banc" case that all the judges would weigh in on. It became a highly anticipated decision, with many observers wondering what the nation's top patent court would have to say about software patents in the wake of several Supreme Court rulings giving more strict guidance about the patent system.

The answer is now clear: not much at all. A lengthy opinion issued Friday reflects nothing but division, with ten judges essentially splitting 5-5 on key issues. That means that the lower court decision will stand, and CLS Bank will be free to operate without making patent-related payments to Alice. It also means that no binding precedent will come from the ruling, since no portion of the document is signed by a majority of the judges. In a footnote on the front page of his opinion,Chief Judge Randall Rader wrote:

No portion of any opinion issued today other than our Per Curiam Judgment garners a majority. The court is evenly split on the patent eligibility of the system. Although a majority of the judges on the court agree that the method claims do not recite patent eligible subject matter, no majority of those judges agrees as to the legal rationale for that conclusion. Accordingly, though much is published today discussing the proper approach to the patent eligibility inquiry, nothing said today beyond our judgment has the weight of precedent.

The decision is reflective of a total division on the most important patent-related court in the country, and it will bring little relief to companies seeking guidance on what their chances are if they are confronted by a competitor or a "troll" seeking royalties.

A five-judge faction sees a path to narrow patent grants

Notably, this high-stakes patent battle came from the world of finance, where trading and banking methods have come to be patented only in recent years, usually with patent claims that also mention software and computers.

Reformers certainly had wanted the lower court decision to stand. Tech companies like Google, Red Hat and HP, as well as reform groups like Public Knowledge and the Electronic Frontier Foundation, had urged such a result. But they also wanted case law that would make it clear some technologies—like financial innovations—simply aren't appropriate for patenting.

That didn't happen. CLS and its reformer allies barely won today. The victory came about as the result of a deeply split court, with the real division in the opinion coming down to what the judges think about "system" claims, where the judges effectively deadlocked 5-5. Seven of the judges agreed that other types of claims, the "method" and "computer-readable media" claims, aren't eligible for patents (although for different reasons.)

Five of the judges wanted to throw out the patents on "Section 101" grounds ruling that they were too abstract to be patented. Reviewing five relevant Supreme Court cases ranging from 1972 to 2011, this faction of the court concluded there should be an "integrated approach" to Section 101, finding primarily that patents "should not be allowed to preempt the fundamental tools of discovery" which must remain "free to all."

In Mayo v. Prometheus, for instance, a Supreme Court decision banned a patent on a diagnostic medical test, even though it described specific steps like "giving a particular man-made drug to a patient" and "drawing and testing blood." But the patented method boiled down to a natural law and added only steps that were "well-understood, routine, conventional activity, previously engaged in by researchers in the field."

With background of Supreme Court decisions, the judges found that Alice Corporation's idea of reducing risk by facilitating trades through a "third-party intermediation" was too abstract to be allowed. "[I]t is a 'disembodied' concept... a basic building block of human ingenuity, untethered from any real-world application," wrote the judges.

The system claims just take those method claims and add the words "apply it" on a computer, the judges suggest. By allowing the claims, the dissenting judges are ignoring Supreme Court precedent. "Not only has the world of technology changed, but the legal world has changed," they write. "The Supreme Court has spoken... on the question of patent eligibility, and we must take note of that change. Abstract methods do not become patent-eligible by being clothed in computer language."

Chief Judge: A computer without software “collects dust, not data”

The five-judge opinion shutting down the Alice patents is followed by a four-judge opinion that would allow the patents or at least their so-called "system" claims. The group of four judges, led by Chief Judge Randall Rader, made it perfectly clear that the decision as a whole means almost nothing.

Rader's four-judge group affirmed the broad scope of what is eligible for patenting under Section 101, written in 1952. "Both inventions and discoveries are eligible for patenting," wrote Rader. "Before 1952, the courts had used phrases including 'creative work,' 'inventive faculty,' and 'flash of creative genius' which compared the existing invention to some subjective notion of sufficient 'inventiveness' as the test for patentability."

In the view of these four judges the 1952 Act, written largely by a patent judge and a chief patent examiner, got rid of that "flash of creative genius." It simply stated that to get a patent, an idea couldn't be obvious. This simple test for "nonobviousness" would be more "objective" than a test for inventiveness.

The four-judge opinion is a full-throated defense of software patents. In one passage, the judges justify the software patents covering the "wonders" of the "smart phone" by citing Diamond v. Diehr, a 1981 Supreme Court case on a patent on a rubber-curing process that is a key decision relied on by software patent supporters. Rader wrote:

The combination of new software and a computer machine accomplishes wonders by reducing difficult processes—like determining where someone is on the earth, instantly translating Chinese to English, or performing hundreds of functions in a hand-held device called a “smart phone”—into a series of simple steps. For example, the Supreme Court upheld precisely this kind of combination for the computer-implemented parameters to run a rubber press—breaking the known steps into tiny mathematical calculations that advanced a known function beyond prior capabilities. See Diehr, 450 U.S. at 179. Indeed, much of the innovative energy and investment of the past few decades have [sic] focused on software improvements that have produced revolutions in modern life, including the “smart phone.”

That software-hardware combination must be allowed to be patented, Rader argued. "Machines are expressly eligible subject matter. Having said that, however, were it not for software, programmable computers would be useless. A computer without software collects dust, not data."

In Rader's view, allowing software patents just isn't that different from allowing patents on more physical electronics. An inventor could claim a machine "with circuitry, transistors, capacitors, and other tangible electronic components precisely arrayed to accomplish the function of translating Chinese to English," wrote Rader. "The fact that innovation has allowed these machines to move from vacuum-tube-filled specialized mechanical behemoths, to generalized machines changed by punch cards, to electronically programmable machines that can fit in the palm of your hand, does not render them abstract."

Fearing “the death... of thousands” of business method patents

From there the defenses of software patents got more strident and more alarmed. Noting that the court is "irreconcilably fractured" over these patents, Judge Kimberly Moore writes that "there has never been a case which could do more damage to the patent system than this one." In her section of the decision, Moore grieves for "the death of hundreds of thousands of patents, including all business method, financial system, and software patents" that would take place, she believes, if the side voting to block Alice Corporation's patents prevailed.

In 2011 more than 42,000 patents were granted in computer software and hardware fields, she notes. If the other side prevailed, she calculates that up to 20 percent of them could have been rendered invalid, which would "decimate the electronics and software industries." That's actually "quite frankly a low estimate," writes Moore, who also fears for the "financial system, business method, and telecom patents" that could be at risk.

Finally, Judge Pauline Newman wrote her own opinion which seems to suggest Section 101 should never be used to kill patents. She suggested the idea that patents can inhibit research and innovation is just a vast misunderstanding. "[T]he popular press has accepted the theory that experimentation is barred for patented subject matter, as have my colleagues" she wrote, footnoting recent articles in The New York Times and The New Yorker which pointed out—accurately—that research scientists and doctors can and were being stopped from examining their own patients' genes by the owner of certain genetic patents.

Newman sees the fractured court as being an invitation for "opportunistic litigation" that could block innovation, but she sees the opportunists as those attacking the patent, not companies seeking to defend themselves from patent attacks.

Clarity on software patents will likely remain elusive without a clear Supreme Court ruling or legislative action on the issue. At the end of the day, the appeals court given control of the US patent system appears more divided than ever in the wake of the Alice Corp v. CLS Bank decision. A core of at least five judges is intent on protecting the wide grasp of the current patent system, resisting strategies—like a more strict reading of Section 101—that could chip away at its energetic sprawl.

On a slight tangent, are we ready to admit that exchanges of patent rights are a taxable transaction? There are somewhere between trillions and infinity dollars worth of rights being exchanged between the big boys through various patent covenants and pools. A cancellation of your credit card debt is recognized as an insidey-outey form of income, why are the behemoths getting away with murder? Golly, the patent system could even assign a value to use in evaluating a patent suit - what value did you choose to be taxed at?

"If I have seen further, it is because I was standing on my own giant shoulders" - IBM

On a slight tangent, are we ready to admit that exchanges of patent rights are a taxable transaction? There are somewhere between trillions and infinity dollars worth of rights being exchanged between the big boys through various patent covenants and pools. A cancellation of your credit card debt is recognized as an insidey-outey form of income, why are the behemoths getting away with murder? Golly, the patent system could even assign a value to use in evaluating a patent suit - what value did you choose to be taxed at?

Now there's an idea which has legs. Why don't we have a property tax on intellectual property? If you want to keep the property, pay a tax on it. If the tax is too much of a burden because you don't actually make any money off the patent, then you can always let the patent (or copyright, or whatever) lapse into the public domain. The tax should both increase revenue and discourage hoarding low-value IP. The public domain should benefit as older or low value patents and copyrights are allowed to lapse in lieu of paying the tax on them.

I'm generally against software patents, but I must say that the arguments given by the Judges supporting them were pretty good.

However, I think the main problem is "obviousness". With software (and some other) patents, the Patent Office does not seem to have the ability to determine if something is obvious. So many of the software patents that come up could have been coded by a first year CS student. So many of them are simply just databases, like a patent to determine if a particular user should have access to a video.

It's funny that Mr. Mullin suggests the Supreme Court has given clear guidance with his assertion without a supporting reference, "in the wake of several Supreme Court rulings giving more strict guidance about the patent system."

Is Mr. Mullin referring to Bilski? If anything, Bilski explicitly allowed for business method patents but only muddied the waters on how to determine when they should be allowed.

On a slight tangent, are we ready to admit that exchanges of patent rights are a taxable transaction? There are somewhere between trillions and infinity dollars worth of rights being exchanged between the big boys through various patent covenants and pools. A cancellation of your credit card debt is recognized as an insidey-outey form of income, why are the behemoths getting away with murder? Golly, the patent system could even assign a value to use in evaluating a patent suit - what value did you choose to be taxed at?

Now there's an idea which has legs. Why don't we have a property tax on intellectual property? If you want to keep the property, pay a tax on it. If the tax is too much of a burden because you don't actually make any money off the patent, then you can always let the patent (or copyright, or whatever) lapse into the public domain. The tax should both increase revenue and discourage hoarding low-value IP. The public domain should benefit as older or low value patents and copyrights are allowed to lapse in lieu of paying the tax on them.

Great idea, but will never happen -- it would be called a barrier to innovation, punitive to small business, and against the free market, amongst other derisions.

Does folks really believe that there would be less innovation/progress in software (and associated hardware) development if software were fundamentally unpatentable? My recollection is that software innovation proceeded along quite well before patents came into vogue but maybe that is just the mists of memory.

we can agree that its not patentable....but we cant agree why it isn't patentable? Am I reading this correctly or no?

Yes, you are. That essentially means that they decided the CASE but didn't produce a precedent. There has to be a legal reasoning that can be applied in the future for a precedent to exist, and the judges could not agree on what the reasoning was.

More generic commentary on the case:

I am not completely against patents, even software patents, though I do think the system has gotten out of control and that a lot of bad patents are issued. So, take my commentary with that bias in mind.

I haven't read the actual summary, so it's quite possible I just dont have the information -- but it feels like the judges in favor of stricter patent guidelines gave their reasoning, ie, "the recent Supreme Court decisions mean this," while the ones opposed to it are simply worried about the effect they can have on the patent system as a whole.

If the Supreme Court has said something, it is not the place of the lower court to claim "but think about the industries that have these patents!" Theirs is to uphold the law as the Supreme Court has interpreted it. Congress' job is to clarify the law to the extent that the Constitution allows if they feel that those interpretations are not the intention of the laws.

Now I'm not so naive as to assume that a Supreme Court decision can't be interpreted multiple ways, but I'd much prefer to hear about their legal reasoning as to why the decisions in question do not apply rather than their concern for the outcome of their decision. I don't mind a court considering the impact of its decisions, but not in the contravention of law. The only quotes I see that even attempt to address that end are from Judge Rader.

In her section of the decision, Moore grieves for "the death of hundreds of thousands of patents, including all business method, financial system, and software patents" that would take place, she believes, if the side voting to block Alice Corp.'s patents prevailed.

Oh, crap, if we strike down one useless, innovation-killing patent, then we'd probably have to strike down a bunch of other useless, innovation-killing patents. THINK OF THAT, YOU MONSTERS!

It's becoming increasingly clear that real patent reform needs to come from the legislative branch. Of course it's also depressingly obvious that the legislative branch has about zero ability to do anything productive these days, so in all likelyhood thte status quo will remain.

EDIT: Disregard, the original post below. I switched the directions white and black were heading halfway through.However, it's still a hopeless position. If white's king stays where it is, black can dither endlessly with its king. If white's king moves to support the pawn at b7, black can dither endlessly with its bishop.

I had noticed that as well, and was confused for a bit. On further reflection, it's not an actual stalemate (legal moves for both sides exist), but it is a position from which neither side can win. White cannot dislodge the black king or promote and subsequently protect its pawn at b7 without help from his own king, which would allow the black pawn to advance. If white overcommits its king, I don't think it can stop the black pawn from promoting before it can promote its own pawn.

So, you get 10 judges to essentially agree that, in this one case, there could be no patent. Then they essentially just write opinions on why or why not this should extend to other patents but in such a way that the Supreme Court cannot take it up yet. I call that passing the buck to Congress, which will only vote to make silly software patents even easier to get because they won't want to piss off their business interests.

On a slight tangent, are we ready to admit that exchanges of patent rights are a taxable transaction? There are somewhere between trillions and infinity dollars worth of rights being exchanged between the big boys through various patent covenants and pools. A cancellation of your credit card debt is recognized as an insidey-outey form of income, why are the behemoths getting away with murder? Golly, the patent system could even assign a value to use in evaluating a patent suit - what value did you choose to be taxed at?

Now there's an idea which has legs. Why don't we have a property tax on intellectual property? If you want to keep the property, pay a tax on it. If the tax is too much of a burden because you don't actually make any money off the patent, then you can always let the patent (or copyright, or whatever) lapse into the public domain. The tax should both increase revenue and discourage hoarding low-value IP. The public domain should benefit as older or low value patents and copyrights are allowed to lapse in lieu of paying the tax on them.

This is called a maintenance fee and already exists. In fact, the prices of maintenance fees went through the roof in March. The problem with commenters on here is that they just don't understand patent law at all.

I think it's a very clear indicator of technological ignorance to say that a simple business/financial procedure is patentable simply because it's on a computer, or uses computers. Why does a computer make it unique? You can't have the same patent if Sally delivers some reports to Jane, but if there's a computer involved generating those reports automatically, all the sudden the same PROCESS can be patented?

Somewhat related, but technology patents get a lot of scrutiny if they're even remotely close to another patented technological device/product/process out there. How does all this work with cars? Do all other manufacturers have to pay Karl Benz's estate royalties? After all, he was the first person to manufacture a gasoline powered car. Do all automobiles have to have a number of wheels other than the standard 4 to be sufficiently unique as to be exempt from this royalty? Or do all car manufacturers spend close to 100% of their time pilfering, remaking, and re-releasing ideas that other manufacturers have already come out with? I'm distinctly reminded of the Jobs quote that he would ruin Android for being a "stolen" product.. I don't see Mercedez-Benz launching lawsuit after lawsuit upon car manufacturers that choose to put 4 wheels on their vehicles, or choose to have an internal combustion engine.

It is only fair that business methods become patentable, just as legal/judicial methods become patentable as well.. Possibly after creating an even bigger mess, the circuit judges will realize how much of an amazingly bad an idea software patents are.

EDIT: Disregard, the original post below. I switched the directions white and black were heading halfway through.However, it's still a hopeless position. If white's king stays where it is, black can dither endlessly with its king. If white's king moves to support the pawn at b7, black can dither endlessly with its bishop.

I had noticed that as well, and was confused for a bit. On further reflection, it's not an actual stalemate (legal moves for both sides exist), but it is a position from which neither side can win. White cannot dislodge the black king or promote and subsequently protect its pawn at b7 without help from his own king, which would allow the black pawn to advance. If white overcommits its king, I don't think it can stop the black pawn from promoting before it can promote its own pawn.

Which is actually a stalemate. If neither player can advance their position towards checkmate then the game is a stalemate by definition, it doesn't have to be impossible for one side to make ANY more, just for neither to make progress. This particular position is a rather classic stalemate actually. Neither sides bishop can threaten the other side's pieces, and both are pinned to diagonals in any case. White can free up its king, but can't do anything useful with it, and black can technically jigger around a bit with its king as well, but to no useful effect. Otherwise its just meaningless shifting of bishops.

However, it's still a hopeless position. If white's king stays where it is, black can dither endlessly with its king. If white's king moves to support the pawn at b7, black can dither endlessly with its bishop.

To put it to rest, what is shown is a certain draw resulting at least from threefold repetition. In my experience, it's quite common to hear people refer to this kind of a draw as a "stalemate". Indeed, until I looked up the actual term for it, I thought it was also called a stalemate, having never been a very serious chess player. But even forgetting about the distinction between stalemate and threefold repetition, common definitions of stalemate include things like "a drawn contest; deadlock". While it is completely fair to say that the technical, chess-specific definition of stalemate does not apply to the picture, it is also fair to say that the general definition of stalemate does indeed apply.

However, it's still a hopeless position. If white's king stays where it is, black can dither endlessly with its king. If white's king moves to support the pawn at b7, black can dither endlessly with its bishop.

To put it to rest, what is shown is a certain draw resulting at least from threefold repetition. In my experience, it's quite common to hear people refer to this kind of a draw as a "stalemate". Indeed, until I looked up the actual term for it, I thought it was also called a stalemate, having never been a very serious chess player. But even forgetting about the distinction between stalemate and threefold repetition, common definitions of stalemate include things like "a drawn contest; deadlock". While it is completely fair to say that the technical, chess-specific definition of stalemate does not apply to the picture, it is also fair to say that the general definition of stalemate does indeed apply.

Agreed. Though it raises a funny issue with the term 'stalemate', which was originally a chess term meaning absolutely no progress is possible. It then got co-opted by sports, politics, etc. to describe a deadlocked situation where progress is possible but extremely unlikely based on available evidence. Now apparently the broader definition is sometimes informally applied in chess to a deadlock where moves and checkmates are theoretically possible but practically impossible. It's some sort of weird, circular etymological chain.

Now there's an idea which has legs. Why don't we have a property tax on intellectual property? If you want to keep the property, pay a tax on it. If the tax is too much of a burden because you don't actually make any money off the patent, then you can always let the patent (or copyright, or whatever) lapse into the public domain. The tax should both increase revenue and discourage hoarding low-value IP. The public domain should benefit as older or low value patents and copyrights are allowed to lapse in lieu of paying the tax on them.

Great idea, but will never happen -- it would be called a barrier to innovation, punitive to small business, and against the free market, amongst other derisions.

Moreover, at least at the Federal level, a property tax (although certainly not an excise on transfers) on patents might very well be considered a direct tax, and so very difficult to make constitutional.

If neither player can advance their position towards checkmate then the game is a stalemate by definition, it doesn't have to be impossible for one side to make ANY more, just for neither to make progress.

The definition of stalemate in chess is that it's your move and there are no legal moves. Even stupid or worthless moves count, and if you have one you must make it, unless the players agree to a draw.

In fact, the position could be winnable on time by one side in some modern "bullet" chess formats where there is no increment. There's also a chance a player makes a mistake, of course.

While it is completely fair to say that the technical, chess-specific definition of stalemate does not apply to the picture, it is also fair to say that the general definition of stalemate does indeed apply.

Call it what it is: a draw........not a stalemate. It becomes a stalemate only when the player to move has no legal move.

How would invalidating patents decimate any industry except the patent troll industry?

It would open up the software world and allow people to program without fear, constantly having to wonder if anyone else has already thought up and patented the same steps they are taking to accomplish something.

The benefit of patents is to stop people from benefiting off of others creation. If you invent a new type of vacuum cleaner and I copy the same new mechanism you used to get superior suction, I'm profitting off of your work without ever having spent to develop and test it like you did.

In the software world, other than stealing someone's code, if you implement the same process I do, you're going to incur the same expense in developing, unit testing, UAT, end to end testing, and then the risk deploying it to a production environment where, if something messes up, could cost you money.

If companies can show that their software is doing something INNOVATIVE then they should have patent protection. Otherwise, its just another financial tactic to try and get money and does nothing to promote business or free market or hell, fairness. And frankly, innovation in software is, in my opinion, limited to new standards, new programming languages, new operating systems, etc. Basically, changing how things are done. A bounce menu animation is not innovative in the least.

While it is completely fair to say that the technical, chess-specific definition of stalemate does not apply to the picture, it is also fair to say that the general definition of stalemate does indeed apply.

Call it what it is: a draw........not a stalemate. It becomes a stalemate only when the player to move has no legal move.

I believe the original question was on the appropriateness of the picture given the use of "stalemate" in the headline. It is quite clear from the headline which sense of "stalemate" is being used, as there is no actual game of chess mentioned in the article. So, then, using the sense of the word as it has made its way into general usage (and as actually used in the headline), the image does indeed seem appropriate, as the game is in a deadlock.

To make it even worse, an image showing the original meaning of "stalemate" doesn't fit the situation with the judges as well as the given image, where the players still have valid moves, but cannot come to any conclusion except a draw (unless someone makes a mistake).

Perhaps we could talk about the damn article and relocate the chess discussion to, oh I dunno, a forum thread for the discussion of what a stalemate is.

We are indeed discussing the article. The article used the word "stalemate" and contained a picture of a chess game. What's it to you if some people found a different part of the article interesting than you did? That's (at least in part) what the block functionality is for. You're free to totally ignore the chess discussion if you wish. It's a little rude, though, to inject yourself into it when you have no desire to do anything but say that you think it's boring.